Gold recovered somewhat overnight in Asia and again today in
Europe despite the sharp selling seen on the COMEX yesterday.

As ever, it is very difficult to pinpoint exactly why gold and
all precious metals fell in price. Interestingly, oil fell by
even more - NYMEX crude was down by 1% and was down by more than
1.7% at one stage.

The CME Group, which operates the U.S. COMEX gold futures market,
said Wednesday's plunge in gold was not the consequence of a "fat
finger" or a human error. The trading wasn’t even fast enough to
trigger a pause on Globex, said CME.

One thing that we can say for certain was that there was massive,
concentrated selling as the New York stock markets opened with
some 35,000 lots sold which is equivalent to 3.5 million ounces
and saw the price fall from $1,735/oz to $1,711/oz between 0825
and 0830 EST.

One sell order alone was believed to be 24 tonnes or 770,000 troy
ounces. Incredibly there was 35% daily volume in just 60
seconds.

The selling, like all peculiar, counter intuitive, sharp sell
offs in recent months, was COMEX driven with COMEX contracts
slammed leading to further stop loss selling.

The selling may have been by speculative players on the COMEX. It
may have been algo or computer trading driven or tech selling –
although this is less likely.

It would be naive to completely discount the possibility that a
bullion bank, short the gold and silver markets, may have been
trying to protect their large concentrated short positions. The
CFTC data shows some bullion banks continue to have massive
concentrated short positions - which are still being
investigated.

Informed commentators questioned the nature of the selling as a
large institutional COMEX trading entity would normally gradually
sell a position of this size in order to maximise profit.

Other speculation was that because of the wholesale liquidation
of all precious metals and some other commodities, the selling
may have come from a fund forced to sell a range of speculative
positions after the SAC Wells notice.

Futures and options expiration may have also played a role,
according to some analysts.

The robustness of gold overnight and recovery this morning is
encouraging as normally one would expect to see follow through
selling after such a sharp move lower.

The gold mining stocks indices were also higher yesterday which
suggests that some precious metal market participants see the
move as another mere blip in the precious metal bull markets.

The fundamentals driving the gold market remain very sound with
broad based demand - store of wealth, investor, institutional and
central bank - continuing to be seen globally.

There have not been very significant increases in open interest
on the COMEX and there is no mania on trading floors and
universal bullishness.

Indeed,
this is far from the case today. There continues to be little or
no positive coverage of the precious metals in the non specialist
financial media.

While ETF holdings are at record highs - the increase in holdings
has been tentative and gradual with no huge jump in demand which
would be associated by a market top.

The shoeshine girls and boys have been selling large amounts of
gold jewellery in the international phenomenon that is 'cash for
gold.'

Meanwhile figures for mints, refiners and bullion dealers in last
quarter show retail investor interest is tepid at best.